FACEBOOK & WHATSAPP

CASE STUDY
ASSIGNMENT #2

GROUP MEMBERS
MUHAMMAD YAHYA BIN ZAFAR (121-19-0005)

HASNAIN AHMED (121-19-0028)

MUHAMMAD HASNAIN ( 121-19-0026)

SUBMITTED TO: SIR SHUJAT ALI CHACHO

SUKKUR IBA UNIVERSITY

AIRPORT ROAD, SUKKUR
 Contents
CASE ANALYSIS..................................................................................2
SWOT ANALYIS...............................................................................2
Q1. What strategic motives were perhaps fueling Facebook’s
interest in acquiring WhatsApp?.......................................................3
1. GAINING ACCESS TO NEW MARKET..........................................3
2. TO ACQUIRE ACCESS TO A WIDER RANGE OF USERS................4
3. TO HAVE ACCESS TO VARIOUS USER INFORMATION................4
Q2. 2. What is or is not in WhatsApp’s 2013 year-end financial
statements that would have been appealing to prospective
acquirer?...........................................................................................5
Q3. Given the information in Exhibit 1 of the case, what summary
accounting entry was possibly made on Facebook's books to record
the WhatsApp deal's closing using the amount entered into the
additional paid in capital (APIC) account as the amount (i.e. the
plug) to make the entry balance?.....................................................5
Q.4. How will the intangible assets that Facebook acquired in WhatsApp
deal be accounted for in the financial statements going forward?
 CASE ANALYSIS
Facebook, a well-known networking site, completed its acquisition of
WhatsApp in shares and cash for $19 billion, retaining it as a specific
service. This is significant news in the IT sector, and it's a big bet for
Facebook, which appears to be shifting its business model to the mobile
social network market by acquiring numerous mobile apps, including
Instagram. This article will present the two firms, discuss the purchase,
and determine if it is an intelligent investment for Facebook.

To analysis this case, we will do a SWOT analysis to get depth

knowledge about the Facebook acquisition of WhatsApp.

SWOT ANALYSIS
Strengths Weaknesses
 There are a considerable  The reliance on advertising is
number of active users. excellent.
 Excellent and highly  Poor website personalization
adaptable user experience  Profits have not been generated
Excellent profitability through technological skills.
 Have a strong cash flow and  Users' information is not
a high company value. adequately protected, and there
 Allow people to engage with are privacy flaws.
celebrities.  Slow entry into the cloud
 Layouts were often altered. computing market Excessive
 advertising
Opportunities Threats
 Expansion of its operations  The Chinese government has
to the international market withdrawn Facebook from the
 increased revenue source Chinese market.
diversity  The rise of online advertising is
 Growing demand in the sluggish.
mobile internet sector  Future user growth is expected
 Customers' increased use of to be limited.
social networks,   Other major IT or technology
 Possibilities of offering firms have segmented functions
possibilities for digital that overlap.
clients to conduct business  Advertisers' Uncertainties

SWOT CONCLUSION:

The critical takeaway from the SWOT analysis is that Facebook is now
quite powerful, but it has relatively restricted product lines, which
contradicts its future business plan of diversity and differentiation (Hill,
1997). Furthermore, cloud computing and mobile internet will be the
primary profit generators in the IT sector in the future. As a result,
Facebook bought WhatsApp to meet the current worldwide trend and
obtain a competitive edge in the mobile internet industry.
 Q1. What strategic motives were perhaps fueling Facebook's
interest in acquiring WhatsApp?

WhatsApp may be the most significant choice for Facebook's goal of

simplifying connectivity through mobile communication. Facebook's
goal is to make the world more connected and valuable. Messenger is
supposed to serve this function, but Facebook didn't receive the reaction
they needed, so they decided to go one step further and create a new type
of communication. A large number of wealthy countries have also
switched to WhatsApp as a means of communication. Facebook's
acquisition of WhatsApp has the potential to provide it with a significant
amount of value.

There are three main motives for Facebook to acquire WhatsApp are the
following

1. GAINING ACCESS TO NEW MARKET

First and foremost, as previously said, Facebook is keen to seize

the potential in the mobile market. With the advent of 3/4G
networks and the quick upgrading of smartphones in recent years,
newly introduced mobile social applications such as Instagram
 (picture sharing app) have seen tremendous growth. Furthermore,
conventional social networks have shifted their business model to
the mobile industry. Social networking websites such as Facebook,
Twitter, and LinkedIn soon built their mobile apps and added new
features such as mobile games and instant messaging functions to
these apps. As a result, acquiring WhatsApp allows Facebook to
establish a new line of business swiftly.

2. TO ACQUIRE ACCESS TO A WIDER RANGE OF USERS

It is evident that this combination aids Facebook in gaining more

users. On the one side, Facebook can expand its business in
developed nations such as the United States to re-engage its
previous users. On the other hand, this bargain has the potential to
attract new users. WhatsApp and Facebook Messenger both have
distinct user bases that do not overlap. China, for example, is a
potential market for Facebook because Whatsapp is permitted in
China, but Facebook is banned. This acquisition may also aid
Facebook's entry into emerging areas such as South Africa, where
WhatsApp is more widely utilized than FB.
 3. TO HAVE ACCESS TO VARIOUS USER INFORMATION 

 User information from WhatsApp is critical to FB. It is evident

that one of the primary ways for social networks or applications to
generate money is through their users' sensitive personal
information. Extensive data analysis allows social network
companies to utilize this data to analyze their users' preferences
and then offer accurate advertising to earn money.

Q2. What is or is not in WhatsApp's 2013 year-end financial

statements that would have been appealing to a prospective
acquirer?

Working capital exhibited a year-over-year increase in negative

operating income, adverse investment profitability, and favourable
outflow through economic transactions, totalling $ 38,984 in the positive
discharge. This liquidity ratio is good, productivity is adequate, and
revenue is sufficient, but profitability and viability must be improved.
As a result, WhatsApp is in the position of being bought. On the day of
acquisition, this sum was invested in WhatsApp Inc. for 10.2 million
 dollars. The three paragraphs will show minus funds and equivalents
as length spent currency addition in equities securities to the extent
stated on the premise. On the imbalance day, the exact numbers will
appear on standalone financial accounts as they did during the buying
week. as well as in consolidated financial statements, and any difference
in principles of the original investment and associated fees will be
allowed to treat as generosity if they having to balance data came from
the asset side and capital reserve from the investment reserve league, a
boundary by cost estimates of both the income statement and
marginalized start sharing ownership will be introduced, and any
differentiation in principles of the original investment and associated
fees will be allowed to treat as generosity if they were having to balance
data came from the asset side and capital reserve from the investment
reserve league

Q3. Given the information in Exhibit 1 of the case, what summary

accounting entry was possibly made on Facebook's books to record
the WhatsApp deal's closing using the amount entered into the
additional paid-in capital (APIC) account (i.e. the plug) to make the
entry balance?
 All substantial and recognized financial capital, as well as any
obligations acquired by the prior tenant, are evaluated in the marketplace
concerning Facebook's acquisition of WhatsApp. The actual value
would have been reflected unless the monthly payment was equal to the
selling price. Because most investments are made to increase a
company's overall weight, characterization is far more extensive than the
market price of the purchased organization. In this circumstance, the
difference between assessed and decision power is documented as
property, which is essential to keep the accounting clear. "Affection"
arises from "expected economics through continued development,
possible monetization opportunities, and comparative standing given in
the virtual world," according to the complaint. Facebook has enjoyed
double-digit profit growth every year since its first public offering (IPO)
in 2013. Despite purchasing WhatsApp in 2014, Facebook's sales
climbed by 44% between 2013 and 2014, implying that the acquisition
had no negative influence on the company's net worth. Total sales
increased by 90% between 2012 and 2013. WhatsApp's market price has
risen from $2.25 to $77.56. Facebook's stock price rose from $2.25 to
$77.56 a share when it attempted to buy WhatsApp. The proprietors
were overjoyed with the increase in earnings. Due to a broader consumer
base and a more assertive foreign currency, Facebook's net revenue
increased by 96 per cent between 2012 and 2014. Following the
announcement of the Viber purchase, Facebook's revenue increased by
 0.3 per cent, indicating that the firm was successful in leveraging
resources to produce money.

As a percentage of net sales, Facebook's inventories and other levels of

quality have increased. Given the plethora of free online messaging
apps, we must consider that WhatsApp may not have been able to attract
enough potential users, making Facebook's high price challenging to
justify. As a result, for the acquisition to be successful, Facebook would
only need to add adverts to Messenger at some point in the future. It's
plausible that the market is currently undervaluing Facebook and Twitter
users. On the other hand, Facebook has had unfavourable consequences
for the situation by financing the entire acquisition with its shares. If fate
brings internet service providers in here for a year or two, it's reasonable
to argue that Facebook overpaid for WhatsApp.

Q.4. How will Facebook's intangible assets in the WhatsApp deal be

accounted for in the financial statements from now on?

Facebook needed to acquire WhatsApp after Yahoo acquired Tumblr

and Microsoft acquired Skype. As a result of the purchases stated above,
each acquiring organization gained access to organizations that did not
show a profit. As a result of the acquisition, Goodwill accounted for the
 most significant change in Facebook's Financial Statements from 2013
to 2014. This generosity is shown in WhatsApp's company image and
reputation, its extensive client base, good customer relationships,
excellent representative relations, and any permits only or advances. In
addition, the acquisition could be viewed as a protective mechanism for
when Facebook finally dissolves into history in the future. When firms
make purchases and pay a premium, they don't have to worry about
paying a high or excessive loss.

On the other hand, Facebook's Goodwill will be tested for impairment

every year and more frequently if specific indicators of incapacity are
accessible. When a company realizes that its Goodwill has faded, since it
doesn't recognize the typical favourable circumstances from future
development, prospective adaption opportunities, and the expansion of
movable informative efforts, it may decide to reduce its staff. Unless the
compassion is registered, altruism-related losses are not tax-exempt.

This procurement, as one can imagine, could raise some serious issues
soon. When HP (HPQ) purchased Autonomy for $11 billion in 2011, it
was truly newsworthy. It took HPQ a year to realize that Autonomy and
HPQ were having significant issues, and HPQ had to record an $8.8
billion loss because of a highly inflated charge, and it likewise
commenced an investigation by the Department of Justice. If WhatsApp
doesn't start proving its value soon, Facebook's stock could suffer a
similar fate. While WhatsApp's altruism will be evaluated annually,
 Facebook has pledged to squeeze the app to make itself more
profitable.

THE END